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Yuan a hostage to U.S. politics

Oct. 11 - Tensions between Beijing and Washington heat up as the Senate mulls a controversial yuan bill this week; but blaming China may no longer lend the same political leverage. Cathy Yang reports.

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SOUNDBITE (English) U.S. PRESIDENT BARACK OBAMA SAYING:
"China has been very aggressive in gaming the trading system."
President Obama in his toughest language yet on the China currency issue.
His comments come just ahead of a U-S Senate vote on the China yuan bill - pressing Beijing to revalue the yuan.
The risk of a trade war rearing its ugly head again, but this time against the backdrop of global economic uncertainties, spanning from Europe's debt crisis, to America's own slowing economy.
Arjuna Mahendran is Head of Asia Investment at HSBC.
SOUNDBITE (English) HSBC'S HEAD OF ASIA INVESTMENT ARJUNA MAHENDRAN SAYING:
"It is definitely a big threat to the future of the global economy and we have to watch for this one very carefully."
A very big threat that comes just as Obama seeks a tough presidential re-election bid next year.
The China yuan bill clearly getting caught in the fray of the political drama unfolding in the U.S.
China watchers see it both as a risk and an opportunity.
SOUNDBITE (English) HSBC'S HEAD OF ASIA INVESTMENT ARJUNA MAHENDRAN SAYING:
"That would then open up a pandora's box of trade restrictions 1930s that severely damaged global growth."
Mizuho's Chief Economist Shen Jianguang.
SOUNDBITE (English) MIZUHO'S CHIEF ECONOMIST FOR ASIA SHEN JIANGUANG SAYING:
"The most important thing is jobs, is the economic growth. Actually, that China now has become a very important market for any country.
Many scholars point out the game has actually shifted in favour of China - as Beijing now has the "battling power" when it comes to the currency issue with the U.S.
SOUNDBITE (English) REUTERS CORRESPONDENT CATHY YANG SAYING:
"That's because the Chinese yuan's appreciated over 20% against the U-S dollar over the past three years - and it did NOT help the U-S reduce the trade deficit. Conversely - China's trade deficit's NARROWED over the same period - as China's imports grew much faster than China's exports. To scholars - this is a very clear sign the trade imbalances caused by currency discrepancies has been - in Dr Shen's words - "partially solved".
SOUNDBITE (English) MiZUHO'S CHIEF ECONOMIST FOR ASIA SHEN JIANGUANG SAYING:
"Also, Chinese authorities allow RMB to continue to appreciate despite the pressure for the RMB to depreciate in the Hong Kong offshore market - that's another sign that Chinese authorities are more relaxed with this gradual pace of appreciation."
But one feature remains the same - the Chinese are unhappy to be pressed and pushed. Still - China may have to grin and bear it - as the issue may very well end up getting caught up in political play - as the U-S elections near.
Cathy Yang, Reuters.

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